VIENNA Iran and six world powers are working to finalize the terms of a likely extension in negotiations over Tehran's nuclear program beyond a July 20 deadline and an announcement may come as early as Friday, Western diplomats said.

Officials from both sides have said it appears the talks will not yield a breakthrough by the self-imposed target date after two weeks of efforts failed to bridge gaps in positions over a deal intended to end a decade-long dispute. (Full Story)

Several diplomats close to the negotiations in Vienna suggested they expected them to resume in September.

Western nations fear Iran's nuclear program may be aimed at developing a nuclear weapons capability. Tehran says it is for peaceful purposes.

"We hope to be gone before Sunday and wrap up (the extension) before the weekend," a Western diplomat said. "We will not have an agreement before Sunday so the next few days is about agreeing terms for a rollover."

Another diplomat said on Wednesday the decision was still not definite: "We would like it to be on Friday, but a lot needs to happen between now and then. We really do not know yet."

In Washington, President Barack Obama consulted with Secretary of State John Kerry about the extension. He told reporters after their meeting that Iran had met its commitments under the interim deal but that significant gaps remained.

"Based on consultations with Secretary Kerry and my national security team, it’s clear to me that we have made real progress in several areas and that we have a credible way forward," Obama told reporters.

"So over the next few days, we’ll continue consulting with Congress - and our team will continue discussions with Iran and our partners - as we determine whether additional time is necessary to extend our negotiations."

Iranian Foreign Minister Mohammad Javad Zarif said the talks - which resumed two weeks ago in the Austrian capital after five earlier rounds since February - would continue seriously until Sunday.

"We have not yet agreed to the extension of talks," he said after a closed-door meeting with U.S. Deputy Secretary of State William Burns on Wednesday.

The talks, involving the United States, Britain, France, Germany, Russia and China as well as Iran, have made tangible progress on some issues, but large discrepancies remain especially on the pivotal issue of Iran's enrichment capacity, diplomats said.

"CLOSE CALL"

An extension of up to six months is theoretically possible according to an interim agreement that Iran and the powers signed in November and began implementing in January.

The six-month accord gave Iran limited sanctions relief in exchange for curbing its most sensitive atomic work.

"The idea is to keep the status quo," the first Western diplomat said about extending the preliminary agreement. "The same terms as now." However, "nothing is decided and that will be the object of discussions".

A major speech by Iran's Supreme Leader Ayatollah Ali Khamenei last week limited the ability of the Iranian delegation at the talks to make concessions, diplomats said, forcing Zarif to return to Tehran to try to win support for more flexibility.

"We have worked a lot and at one point the value of these talks is relative compared to the needs," the diplomat said. "The need is that Mr. Zarif returns and obtains from the Supreme Leader the necessary flexibility to deliver us a deal."

The powers want Tehran to significantly scale back its nuclear enrichment program to make sure it cannot yield nuclear bombs. Iran wants sanctions that have severely damaged its oil-dependent economy to be lifted as soon as possible.

Kerry had joined the talks at the weekend meeting Zarif several times, but he said before leaving Vienna on Tuesday that it was "crystal clear" that 19,000 nuclear enrichment centrifuges Iran has installed were too many.

At a separate news conference, Zarif responded by saying that "insisting on the number of centrifuges is useless".

Despite the gaps and likely extension of the talks, "We still believe that a final deal is probable ... though it's a very close call," Cliff Kupchan, a director and Middle East analyst at Eurasia Group, said.

(Additional reporting by Louis Charbonneau and Fredrik Dahl in Vienna, Justyna Pawlak in Brussels, and Jeff Mason in Washington; Editing by Andrew Heavens and Ken Wills)

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